The Case for Emerging-Markets Stocks

Northern Trust's chief investment strategist says that the sector's recent underperformance has made valuations relative to developed-market stocks more attractive.

Emerging-market equities have historically outperformed as the global economy gained momentum. After a great catch-up rally in the second half of 2012, the stocks finished the year as global outperformers – only to lose that momentum in the first quarter of 2013.

What is behind the recent underperformance, and what does it say about the outlook? Our research points to a number of contributors to the recent weakness. First, there has been significant outperformance by those markets whose central banks are undertaking...